In the economics world, the frightening mixture of slowing growth and rising prices results in “stagflation.” Last month we discussed how the collapse of housing prices has triggered fears of a recession. Not everything is getting cheaper. Oil is the most obvious example — but so are healthcare, college tuition and your monthly mortgage.
The last time the U.S. suffered through this condition was in the 1970s. Back then shortages of oil caused soaring prices and long lines at gasoline stations. Meanwhile, the economy was slumping, jobs were disappearing and price hikes were rampant. It was a scary time.
And we survived it.
There are steps you can take to protect your own finances this time around.
• First of all, do not sell everything and buy gold. Seriously. People did that in the ‘70s and they bought gold at prices not seen again for 30 years.
• The place where you could get hurt is in adjustable rate debt. In the late ‘70s, interest rates went to levels that are unheard of these days. Well, unheard of outside of credit card rates, which never seem to reflect reality.
• Try to pay down debt — like credit card balances and other bills. Of course this is true no matter what the economic forecast and is never easy. If you still have an adjustable rate mortgage, now is the time to lock in a fixed-rate mortgage.
• Try to increase savings. Stagflation makes it difficult to save any money, so start now. The more cash you have to call upon in an emergency, the more secure you will feel and decisions will not be made out of desperation.
Terry Davies is portfolio manager at Investment Management & Consulting Group, a registered investment advisor in Portland. IMCG provides comprehensive financial and investment guidance to individuals, families, endowments and businesses. He welcomes your feedback by phone: 800-605-6552, or email: tdavies@imcgrp.com. The analysis of the financial markets in this column is not meant as investment advice.